Egypt market slumps as Mideast turmoil spreads

RobertDaniel

SAN FRANCISCO (MarketWatch) — The Egyptian stock market’s benchmark index slumped more than 10% Thursday, extending this year’s losses to 21%, as another day of protests seeking to oust the government of President Hosni Mubarak spooked investors.

Yemenis demand new government

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At least 16,000 protesters, inspired by uprisings in Tunisia and Egypt, take to the streets of Yemen's capital, Sana’a, calling for a change of government. Video courtesy of Reuters.

The market’s slump reflected a local and regional backdrop that formed with lightning speed.

On Jan. 13, U.S. Secretary of State Hillary Clinton called on the Arab states to reform their societies. Their citizens “have grown tired of corrupt institutions and a stagnant political order,” she was quoted as saying.

The following day, after weeks of turmoil, Tunisians forced their longtime leader, Zine al-Abidine Ben Ali, into exile. Two weeks later, the Arab world was roiled by protests in Algeria, Egypt, Jordan and Yemen. In addition, a prime minister supported by the Iranian-backed Hezbollah is attempting to form a new government in Lebanon. Read the MarketWatch feature on Tunisia’s investment prospects.

On Thursday, Egypt’s leading opposition figure, Mohammed el-Baradei, returned to the country, media reports said. The former head of the United Nations nuclear-arms watchdog has called on Mubarak to step down.

The cost of insuring the country’s debt has risen sharply. According to data provider Markit, Egypt’s five-year credit-default swap spread late Thursday was 3.9 percentage points, compared with 3.55 late Wednesday. The spread was around 2.4 points in early January, before the Tunisia crisis.

In a Thursday note, Royal Bank of Scotland emerging-market analyst Raza Agha affirmed an underweight rating on Egypt’s credit and currency, saying that military and security forces still appear to back the current regime and the government doesn’t seem in immediate jeopardy.

But developments Thursday and Friday “are critical to watch as the sheer size” of the country’s population, “the heavy-handedness of security forces and the presence of the media could change [the] dynamics very quickly,” he said.

In Wednesday comments, Agha called Egypt the most susceptible of the Mideast states to “a Tunisia-style event.”

Factors prompting that assessment, he said, include “lower levels of per-capital gross domestic product, [high] inflation (particularly food), the sheer number of people impacted by higher food prices (60% of Egyptians are entitled to receive government-subsidized bread), [high] unemployment and the worst corruption rankings in the region.”

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